Home' Trinidad and Tobago Guardian : September 27th 2015 Contents SBG16 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 27 • 2015
Chair Janet Yellen said Thursday that she
expects the Federal Reserve to begin raising
interest rates from record lows by the end of
In a lecture at the University of Massachu-
setts at Amherst, Yellen said she thought infla-
tion would gradually move up to the Fed's
target rate of 2 percent as unusually low oil
prices and other factors prove temporary. And
she suggested that global economic weakness
won't likely be significant enough to dissuade
the Fed from raising its key short-term rate
from zero by December.
Yellen's comments may help clarify doubts
about the Fed's intentions that deepened last
week after its latest policy meeting ended.
The Fed chose not to raise rates, citing global
economic pressures and concern about exces-
sively low inflation.
That decision raised worries that the Fed
had greater concerns about economic problems
in China and falling stock markets than
investors had previously thought.
In her speech Thursday, Yellen said Fed offi-
cials continue to monitor economic troubles
abroad. But she said officials don't think those
challenges will significantly influence the cen-
tral bank's interest-rate decisions.
Toward the end of the speech, Yellen, 69,
paused twice for several seconds, appearing
to have lost her place in the text. The Fed said
in a statement later that Yellen "felt dehydrated
at the end of a long speech under bright lights."
The Fed statement said she was seen by
emergency medical personnel and "felt fine
afterward and has continued her schedule
At a news conference last week, Yellen had
avoided saying whether she herself still thought
a rate hike would be justified this year. She
said she preferred to convey the collective
view of the Fed's policymaking committee,
which establishes the central bank's rate deci-
sions. But on Thursday, Yellen included herself,
saying, "Most of my colleagues and I anticipate
that it will likely be appropriate to raise the
target range for the federal funds rate sometime
later this year."
The Fed has two remaining meetings for
this year, Oct. 27-28 and Dec. 15-16. Many
economists say they doubt the Fed would have
enough new information to be confident about
hiking rates in October but say they do expect
a move in December as long as nothing unex-
pected happens to threaten the economy.
"Our base-case scenario is still that the Fed
will begin to hike rates in December," said
Paul Ashworth, chief US economist at Capital
He cautioned, though, that any government
shutdown caused by battles over the federal
budget or a failure to raise the government's
borrowing limit in a timely way could cause
the Fed to further delay a rate increase.
As she has before, Yellen stressed that when
the Fed does begin raising rates, it expects the
increases to be extremely gradual. The central
bank has left its benchmark rate at a record
low since 2008. It last raised rates in 2006.
She also emphasized that the Fed has made
no final decision about a rate hike. The decision
still depends on further progress toward the
Fed's dual mandates: Maximizing employment
and maintaining price stability, which the Fed
defines as inflation rising at a modest annual
pace of 2 per ≤cent.
In August, the US unemployment rate
reached a seven-year low of 5.1 per cent, essen-
tially achieving the Fed's job goal. But inflation
has been running below the Fed's target for
more than three years and recently has fallen
even farther from the 2 per cent goal. Ultra-
low inflation has resulted in part from a plunge
in energy prices over the past year and a high-
er-valued dollar, which has made imports
Yellen said Fed officials still think the depres-
sive effects of the dollar and energy prices will
fade, allowing inflation to return to the 2 per
cent level. She noted that the Fed expects low
unemployment to eventually accelerate wage
Yellen's comments came in a 23-page speech
that was accompanied by numerous charts,
economic formulas and footnotes, which pro-
vided an extensive review of the Fed's views
on factors that influence inflation.
Famed bond analyst Bill Gross last week
called on the US Federal Reserve to raise interest
rates as soon as possible as he said that would
lead to some near-term market losses in
exchange for longer-term stability and a health-
ier financial system.
If zero interest rates become the long-term
norm, economic participants will soon run on
empty because their investments aren't pro-
ducing the gains or cash flow needed to finance
past promises in an aging society, he wrote in
an investment outlook on Wednesday for Den-
ver-based Janus Capital Group Inc. That's
already beginning to happen as Detroit, Puerto
Rico, and, he predicts, soon Chicago, struggle
to meet their liabilities.
"My advice to them is this: get off zero and
get off quick," Gross urged the central bankers.
He said it's time for a "new thesis" that allows
people in developed economies to save,
enabling liability-based business models to
survive and spurring more private investment,
"which is the essence of a healthy economy.
Near term pain? Yes. Long term gain? Almost
certainly. Get off zero now!"
The Fed last week decided to keep its bench-
mark rate near zero, showing reluctance to
end an era of record monetary stimulus in a
time of market turmoil, rising international
risks and slow inflation at home. Futures
traders are betting the Fed is unlikely to act
in October, as they put 43 per cent odds on
an increase by December and 51 per cent by
January, according to data compiled by
Last week, Gross said the Fed was right to
keep interest rates near zero at the September
meeting, and that it may take years for the
economy and rates to return to more normal
levels. Monetary policy has exhausted its effec-
tiveness, with asset prices distorted by years
of near-zero rates, and fiscal policy will be
needed to get the economy back on stronger
footing, Gross said in a Sept. 18 interview with
Tom Keene and Michael McKee on Bloomberg
"They did the right thing," he said in that
interview, citing current financial conditions.
"When they did the wrong thing, and this is
way back in terms of past history, they went
below 2 percent in terms of the short-term
rate. They didn't have to do that, they didn't
have to go to zero. So now getting back up
there will wreak havoc on asset markets."
Gross, 71, joined Janus about a year ago after
leaving Pacific Investment Management Co.,
where he once ran the world's biggest mutual
fund. He now oversees the US$1.4 billion Janus
Global Unconstrained Bond Fund. The fund
lost 1.7 per cent this year, putting it behind
76 percent of similar funds, according to data
compiled by Bloomberg.
Gross underscored that it's not just insurance
companies and giant pension funds that are
suffering from low interest rates. Investors
aren't getting the 8 percent to 10 percent
returns they counted on to pay for education,
health care, retirement or vacation.
"Mainstream America with their 401(k)s
are in a similar pickle," he wrote. "They are
not so much in a pickle barrel as they are on
a revolving spit, being slowly cooked alive
while central bankers focus on their Taylor
models and fight non-existent inflation," Gross
said, referring to a rule named for Stanford
University economist John Taylor.
Fellow famed bond manager Jeffrey Gund-
lach, co-founder of US$80 billion DoubleLine
Capital, sees a fifty-fifty chance the Fed will
raise interest rates in December. Gundlach
forecast "choppiness" in fixed-income markets,
though he said yields won't actually change
much. Los Angeles-based Gundlach has been
saying for months that the Fed may not be
able to raise rates this year for reasons including
a strong dollar. (Bloomberg)
Yellen says she expects Fed
to raise rates by year's end
Gross Tells Fed to 'Get Off Zero Now!'
Links Archive September 26th 2015 September 28th 2015 Navigation Previous Page Next Page